Fitch Ratings has revised its outlook on Australia-based QBE Insurance Group Limited and its core subsidiaries from “stable” to “positive.”
The credit rating agency reaffirmed QBE’s long-term issuer default rating (IDR) at “A-” and assigned an insurer financial strength (IFS) rating of “A+” to QBE’s key subsidiaries.
This positive outlook suggests an improvement in QBE’s financial health and capital stability, which aligns with Fitch’s benchmarks for an “A” IFS rating.
The agency pointed to QBE’s “favourable” company profile as a key factor supporting its ratings within the non-life insurance sector.
Over the past three years, QBE has shown a marked improvement in underwriting results, aided by premium rate increases and targeted strategies to reduce earnings fluctuations.
According to Fitch, QBE’s combined ratio, a metric reflecting underwriting profitability, fell to 91% in the first half of 2024 and 93% in 2023, an improvement from 95% in 2022. Return on equity also climbed, reaching 16% in the first half of 2024, up from 7% a year earlier.
A net profit of US$806 million was reported for the first half of 2024, double the US$404 million seen in the same period in 2023, which Fitch attributed to lower catastrophe costs and a stable reserve situation.
Fitch assessed QBE’s capital base as “extremely strong” as of the end of 2023, supported by a conservative reinsurance approach that reduces its exposure to large-scale catastrophes.
The insurer’s coverage ratio of the regulatory prescribed capital amount (PCA) reached 1.77x in mid-2024, which exceeds Fitch’s standards for an “A” IFS rating. The PCA ratio also aligns with the upper end of QBE’s target range, which is set between 1.6x and 1.8x.
At mid-2024, QBE’s financial leverage ratio remained steady at 21%, a level Fitch considers appropriate for its rating status.
Fitch rates QBE’s company profile as “favourable,” crediting the insurer’s scale and broad international footprint. While stronger results were recorded in QBE’s European and Australian operations, its North American performance has been relatively weaker in recent years.
As part of a refocusing strategy, QBE announced in June 2024 the planned closure of its North American middle-market operations, aiming to concentrate resources on markets with more substantial positioning.
QBE has demonstrated stability in accessing capital through both debt and equity markets.
Institutional and retail investors have consistently supported QBE’s capital efforts, and Fitch noted that QBE’s financial flexibility is expected to hold steady, backed by ongoing operational improvements.
The insurer’s fixed-charge coverage ratio increased from 4.7x in 2022 to 9.6x in 2023, reflecting the enhanced profitability.
Fitch reports that QBE maintains a risk-averse investment strategy, primarily focusing on high-quality fixed-income assets.
As of year-end 2023, Fitch calculated QBE’s risky-asset ratio at 26%, which the agency considered low.
Fitch noted that QBE’s ratings could be affected by a significant deterioration in financial performance. Key triggers for a downgrade include:
A notable loss in market position could also influence ratings negatively.
Conversely, QBE could see an upgrade if it demonstrates sustained improvement in core financial metrics, including a consistent return on equity above 10% and a combined ratio below 94%.
Fitch assigned an environmental, social, and governance (ESG) relevance score of “3” for QBE, indicating that ESG factors currently have minimal impact on QBE’s credit profile.
ESG scores are used by Fitch to provide context on their relevance to financial ratings but do not factor directly into the assessment process.
